China sees new world order with oil benchmark backed by gold

[Mr. SmithParticipant 686]

Yuan-denominated contract will let exporters circumvent US dollar

Source: https://asia.nikkei.com/Markets/Commodities/China-sees-new-world-order-with-oil-benchmark-backed-by-gold

DAMON EVANS, Contributing writer

DENPASAR, Indonesia — China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game-changer for the industry.

The contract could become the most important Asia-based crude oil benchmark, given that China is the world’s biggest oil importer. Crude oil is usually priced in relation to Brent or West Texas Intermediate futures, both denominated in U.S. dollars.

China’s move will allow exporters such as Russia and Iran to circumvent U.S. sanctions by trading in yuan. To further entice trade, China says the yuan will be fully convertible into gold on exchanges in Shanghai and Hong Kong.

“The rules of the global oil game may begin to change enormously,” said Luke Gromen, founder of U.S.-based macroeconomic research company FFTT.

The Shanghai International Energy Exchange has started to train potential users and is carrying out systems tests following substantial preparations in June and July. This will be China’s first commodities futures contract open to foreign companies such as investment funds, trading houses and petroleum companies.

Most of China’s crude imports, which averaged around 7.6 million barrels a day in 2016, are bought on long-term contracts between China’s major oil companies and foreign national oil companies. Deals also take place between Chinese majors and independent Chinese refiners, and between foreign oil majors and global trading companies.

Alan Bannister, Asia director of S&P Global Platts, an energy information provider, said that the active involvement of Chinese independent refiners over the last few years “has created a more diverse marketplace of participants domestically in China, creating an environment in which a crude futures contract is more likely to succeed.”

China has long wanted to reduce the dominance of the U.S. dollar in the commodities markets. Yuan-denominated gold futures have been traded on the Shanghai Gold Exchange since April 2016, and the exchange is planning to launch the product in Budapest later this year.

Yuan-denominated gold contracts were also launched in Hong Kong in July — after two unsuccessful earlier attempts — as China seeks to internationalize its currency. The contracts have been moderately successful.

The existence of yuan-backed oil and gold futures means that users will have the option of being paid in physical gold, said Alasdair Macleod, head of research at Goldmoney, a gold-based financial services company based in Toronto. “It is a mechanism which is likely to appeal to oil producers that prefer to avoid using dollars, and are not ready to accept that being paid in yuan for oil sales to China is a good idea either,” Macleod said.

Yuan-denominated gold contracts have significant implications, especially for countries like Russia and Iran, Qatar and Venezuela, said Louis-Vincent Gave, chief executive of Gavekal Research, a Hong Kong-based financial research company.

These countries would be less vulnerable to Washington’s use of the dollar as a “soft weapon,” if they should fall foul of U.S. foreign policy, he said. “By creating a gold contract settled in renminbi [an alternative name for the yuan], Russia may now sell oil to China for renminbi, then take whatever excess currency it earns to buy gold in Hong Kong. As a result, Russia does not have to buy Chinese assets or switch the proceeds into dollars,” said Gave.

Grant Williams, an adviser to Vulpes Investment Management, a Singapore-based hedge fund sponsor, said he expects most oil producers to be happy to exchange their oil reserves for gold. “It’s a transfer of holding their assets in black liquid to yellow metal. It’s a strategic move swapping oil for gold, rather than for U.S. Treasuries, which can be printed out of thin air,” he said.

Market share

China has been indicating to producers that those happy to sell to them in yuan will benefit from more business. Producers that will not sell to China in yuan will lose market share.

Saudi Arabia, a U.S. ally, is a case in point. China proposed pricing oil in yuan to Saudi Arabia in late July, according to Chinese media. It is unclear if Saudi Arabia will yield to its biggest customer, but Beijing has been reducing Saudi Arabia’s share of its total imports, which fell from 25% in 2008 to 15% in 2016.

Chinese oil imports rose 13.8% year-on-year during the first half of 2017, but supplies from Saudi Arabia inched up just 1% year-on-year. Over the same timeframe, Russian oil shipments jumped 11%, making Russia China’s top supplier. Angola, which made the yuan its second legal currency in 2015, leapfrogged Saudi Arabia into second spot with an increase of 22% in oil exports to China in the same period.

If Saudi Arabia accepts yuan settlement for oil, Gave said, “this would go down like a lead balloon in Washington, where the U.S. Treasury would see this as a threat to the dollar’s hegemony… and it is unlikely the U.S. would continue to approve modern weapon sales to Saudi and the embedded protection of the House of Saud [the kingdom’s ruling family] that comes with them.”

The alternative for Saudi Arabia is equally unappetizing. “Getting boxed out of the Chinese market will increasingly mean having to dump excess oil inventories on the global stage, thereby ensuring a sustained low price for oil,” said Gave.

But the kingdom is finding other ways to get in with China. On Aug. 24, Saudi Vice Minister of Economy and Planning Mohammed al-Tuwaijri, told a conference in Jeddah that the government was looking at the possibility of issuing a yuan-denominated bond. Saudi Arabia and China have also agreed to establish a $20 billion joint investment fund.

Furthermore, the two countries could cement their relationship if China were to take a cornerstone investment in the planned initial public offering of a 5% state in Saudi Aramco, Saudi Arabia’s national oil company. The IPO is expected to be the largest ever, although details on the listing venue and valuation are yet scant.

If China were to buy into Saudi Aramco the pricing of Saudi oil could shift from U.S. dollars to yuan, said Macleod. Crucially, “if China can tie in Aramco, with Russia, Iran et al, she will have a degree of influence over nearly 40% of global production, and will be able to progress her desire to exclude dollars for yuan,” he said.

“What is interesting is that China’s leadership originally planned to clean up the markets next year, but brought it forward to this year. One interpretation of that change is that they have brought forward the day when they pay for oil in yuan,” said Simon Hunt, a strategic adviser to international investors on the Chinese economy and geopolitics.

China is also making efforts to set other commodity benchmarks, such as gas and copper, as Beijing seeks to transform the yuan into the natural trading currency for Asia and emerging markets.

Yuan oil futures are expected to attract interest from investors and funds, while state-backed oil majors, such as PetroChina and China Petroleum & Chemical (Sinopec) will provide liquidity to ensure trade. Locally registered entities of JPMorgan, a U.S. bank, and UBS, a Swiss bank, are among the first to have gained approval to trade the contract. But it is understood that the market will be also open to retail investors.

"I need men, real men, men with balls, certainly not sissies. I would never ask them to take an enemy position, but I insist that they follow me to that position. If you are one of those men, raise your hand." Napoleon Bonaparte

[CarnageParticipant 22113]

Holly s~~~.

This is real?

Gold is going through the roof on Monday.

F~~~ should have buyed more.

To those following me, be careful, I just farted. Men those beans are killers.

[Mr. SmithParticipant 686]

I think the news outlet is serious, but I can’t tell anything about the information itself. I was rather surprised by it. This is a game changer and wars was fought for lesser reasons.

"I need men, real men, men with balls, certainly not sissies. I would never ask them to take an enemy position, but I insist that they follow me to that position. If you are one of those men, raise your hand." Napoleon Bonaparte

[NerdTunnelerParticipant]

On theory it looks good…In practice, we will have to see…Considering that Chinas economy is slowing down plus a lot of the Chinese elite are leaving the mainland…Perhaps I am just wary when it comes to the chinese propaganda machine…This is a 2015 video by the site China uncensored that delves behind current Chinese politics…
Plenty of interesting ideas from this Youtube channel…

I stand with feet apart and let my balls hang free...Manginas dont have balls...See how they stand and sit at the whim of their masters...

[BigvernParticipant 1983]

Mr. Smith wrote:

China has long wanted to reduce the dominance of the U.S. dollar in the commodities markets.

If This is TRUE WW3, is not far behind,……The US, will NOT except this game changer.

Mr. Smith wrote:

I think the news outlet is serious, but I can’t tell anything about the information itself. I was rather surprised by it. This is a game changer and wars was fought for lesser reasons.

Yep!

"What made you think, there'd be a livin' in sheep?, Eat, Work, Eat Work and Sleep" - Mark Knopfler.

[Mr. SmithParticipant 686]

What I miss from this article is the effect this step will have on the Dollar in general. China is the biggest hoarder of Dollars outside the USA. They cannot have an interest to devalue this big stack of money.
After thinking about this story for a little I don’t think it will increase the gold price in the long run. It will peak in the near future, but in the long run it will have a stabilizing effect on the gold price. Right now gold is more or less an object of financial speculations. If it is used as a currency again, especially for large values like oil and later maybe gas, metals and other resources, it will lose it’s speculative nature. Nevertheless it can have a devastating effect on national currencies like the Dollar and currencies related to it like the Euro or Yen if those countries do not go back to backup their currency by gold.

"I need men, real men, men with balls, certainly not sissies. I would never ask them to take an enemy position, but I insist that they follow me to that position. If you are one of those men, raise your hand." Napoleon Bonaparte

[CarnageParticipant 22113]

There will be no war over this.

Trump knows this, he is helping them, USA doesn’t have the economic power they used to have.

Us is broke, weakened dollar will help the Chinese to become political and economic world power.

But they will also wold have to become the world police in stead of USA.

When you wife cheats on you, the most evil thing you can do, is leave the other guy have that bitchy sloppy second.

To those following me, be careful, I just farted. Men those beans are killers.

[CarnageParticipant 22113]

Mr. Smith wrote:

What I miss from this article is the effect this step will have on the Dollar in general. China is the biggest hoarder of Dollars outside the USA. They cannot have an interest to devalue this big stack of money.
After thinking about this story for a little I don’t think it will increase the gold price in the long run. It will peak in the near future, but in the long run it will have a stabilizing effect on the gold price. Right now gold is more or less an object of financial speculations. If it is used as a currency again, especially for large values like oil and later maybe gas, metals and other resources, it will lose it’s speculative nature. Nevertheless it can have a devastating effect on national currencies like the Dollar and currencies related to it like the Euro or Yen if those countries do not go back to backup their currency by gold.

Maybe, but I think if gold goes up to 3-4000 an onze I will sell my stash. Take the earnings and buy some land in the caribean.

To those following me, be careful, I just farted. Men those beans are killers.

[CarnageParticipant 22113]

wow suposedly Fat boy has a nuke, capable of fitting ICBM.

I dont think is a joke, the NK are a nuclear armed nation, i just hope he uses it.

Lets go WW3.
go go go

To those following me, be careful, I just farted. Men those beans are killers.

[NerdTunnelerParticipant]

Well, I could bet on Elon Musk to take us out of oil dependency…

Carnage wrote:

wow suposedly Fat boy has a nuke, capable of fitting ICBM.

I dont think is a joke, the NK are a nuclear armed nation, i just hope he uses it.

Lets go WW3.
go go go

Im hoping that I would die on Mars and not through WW3…But if it WW3 happens before Mars, then no s~~~…Better enjoy my time today before s~~~ hits the fan…

I stand with feet apart and let my balls hang free...Manginas dont have balls...See how they stand and sit at the whim of their masters...

[Anonymous 42]

So much instability I started burning wood for economic independence from bouncing oil prices. Not so worried about $5.00 a gallon threat to stay warm shivering under an electric blanket, find some other sucker to extort!

[CarnageParticipant 22113]

Anonymous wrote:

So much instability I started burning wood for economic independence from bouncing oil prices. Not so worried about $5.00 a gallon threat to stay warm shivering under an electric blanket, find some other sucker to extort!

also food cooked on wood tastes soo fcking good.

To those following me, be careful, I just farted. Men those beans are killers.

[Anonymous 14]

The Russians say Gadaffi had the similar intentions, look how that ended for him… China on the other hand has tied it’s success to U.S. success, so I am not so sure how this would play out if they made a move. There will be no war with China, I do know that much, the U.S. are pussies who only mess with little guys who cannot fight back.

[Mr. SmithParticipant 686]

Even a conventional war between China and the USA would be devastating. Yes, China would not win over the USA, but they could hurt it so much the USA would not recover within many years, decades are more likely. Time other countries (Russia, India, Europe etc) will use to become the dominant power in the world. All sides know it and that’s why it wont happen.

All this is a clear sign the former US-administration screwed up. They maneuvered the USA in a position they cannot act anymore as they cloud before. No matter what Trump does now, it’s a losing move. If he lets it happen, the USA will lose it’s dominance in the oil sector and over time in any other area. If he tries to force China he risks a war with the same result. All what’s left are negotiations with the Chinese and this means give and take.
One has to admire the strategic thinking of the Chinese, because this is not done from one day to another. This needs years or decades of planning and execution on several fronts like international politics, economy, technology and military.

"I need men, real men, men with balls, certainly not sissies. I would never ask them to take an enemy position, but I insist that they follow me to that position. If you are one of those men, raise your hand." Napoleon Bonaparte

[743 roadmasterParticipant]

Mr. Smith wrote:

What I miss from this article is the effect this step will have on the Dollar in general. China is the biggest hoarder of Dollars outside the USA. They cannot have an interest to devalue this big stack of money.
After thinking about this story for a little I don’t think it will increase the gold price in the long run. It will peak in the near future, but in the long run it will have a stabilizing effect on the gold price. Right now gold is more or less an object of financial speculations. If it is used as a currency again, especially for large values like oil and later maybe gas, metals and other resources, it will lose it’s speculative nature. Nevertheless it can have a devastating effect on national currencies like the Dollar and currencies related to it like the Euro or Yen if those countries do not go back to backup their currency by gold.

Interesting, gold backed trade in oil. I personally do not think it will have an effect on the dollar. The US has a large gold reserve. On top of that the US is not bringing in oil like it once did back in the 1970’s. Our market will still be based in Brent and West Texas. So China will still have to deal in the US dollar when buying here.

This will however bring a fundamental change to the Asian market. The big question is how will this affect change in Japan and South Korea.

The war thing on the gold standard, not going to happen. China is not Libya, and is one of the 3 major world players. On top of that China has learned it likes money and war between 2 of the 3 is not good for business.

Oh and Saudi Arabia would not have to accept the contract, if Russia, Iran and Venezuela did, and all in need of currency and under some kind of sanction,…..game changed.

mgtow is its own worst enemy- https://www.campusreform.org/

[743 roadmasterParticipant]

I forgot to add the possible conspiracy theory.

Interesting the timing. The US can not really put in a big challenge to this, being as we need China in the North Korea crisis.

Lets see what happens if the gold standard sticks,…will North Korea then become a quiet little back water country.

mgtow is its own worst enemy- https://www.campusreform.org/

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